In order to truly understand how to manage inventory we must first understand what are the different types of inventory or stock, why it is important to have or not have inventory, what to do with unused inventory, and the many financial implications of carrying or holding inventory within your organization. We also need to be able to know the differences between physical and paper inventory and how they impact our companies in different ways.
Inventory can be viewed both as tangible and intangible. Tangible inventory is what is actually on the shelves or in the warehouse. Intangible inventory is what your system states that you currently have on the floor or shelves. It is vital that these two numbers be very close to exact as decisions are made based on what the system or paper is showing to be in stock. If there are great discrepancies between these two numbers then the probability of overspending or an under order is likely.
Inventory is categorized in several groups. First, there are the raw materials that are needed to create a finished product. Take the example of a bakery. The raw materials of a cake would be ingredients such as eggs, flour, and sugar. The raw materials are made into sub-assemblies also known as “WORK IN PROGRESS”. This would be cake batter in the previous example. Works in progress are raw materials that are in the process of becoming finished products. It is important to keep WIP to a minimum as too many unfinished projects can lead to variety of problems within the supply chain. Finally, once all of the parts and sub-assemblies are combined to make a complete item you arrive at the FINISHED PRODUCT. A chocolate cake, ready for sale and consumption would be the finished product in the bakery example used above.
There are also functional types of stock like CONSUMABLE stock. These are the items that an organization uses on a day to day basis to maintain its business function. Consumables could be coffee, copy paper, cleaning supplies, packaging materials or any items that they use and are not for resale.
An additional stock category would be Service and Repair stock, or S&R for short. Spare parts, lubricants and fluids or any items that are required to help maintain your business machines viability would fall into this category. Business machines could be anything from a computer to a forklift. If they require items to be kept on hand to keep them up and running properly, then these items would fall into the S&R category of inventory. S&R items will not become obsolete providing the machine that they are used to maintain remains in use.